A report by the City Finance Commission sets out an agenda for reform designed to revive our cities as centres for economic growth.

The Government should take up the challenge, says one of the commissioners, Nick Raynsford

Cities have, throughout history, been both the focus for and the engine of economic growth.

Whether one looks at ancient Mesopotamia, the Greek city-states, renaissance Italy, 19th century Manchester, 20th century New York or 21st century Shanghai, cities have acted as a magnet for economic and cultural dynamism, attracting entrepreneurs, innovators and trail-blazers, and generating unprecedented creative energy and wealth.

This is not to say there hasn’t been a downside. Slavery underpinned the great monuments of the ancient world, renaissance Florence was a violent as well as a cultured city, Engels denounced the inequality and poverty of industrial Manchester, and Ai Weiwei’s recent disappearance is a reminder that 21st century China is an authoritarian state with scant respect for human rights.

But, for all the reservations, there can be no doubt that cities have been dynamic forces in world history.

The recently-published report from the City Finance Commission, chaired by Sir Stuart Lipton (see The MJ, 26 May), has reaffirmed the importance of cities and identified a series of changes to their power and governance which can help them fulfil their potential as catalysts for economic growth in 21st century Britain.

The report’s basic premise is a simple one – and very familiar to all students of local government. Britain is an unduly-centralised state in which the authorities responsible for governing our cities are over dependent, financially, on central government, and have very limited freedom for manoeuvre, certainly by contrast with their Victorian forebears.

In the context of world history, this is not a satisfactory place to be. Change is needed to give cities more scope to innovate and more control over their own destiny, and this is essential if we are not to inhibit economic growth in the coming century.

But, this is easier said than done. The history of the past 40 years is littered with proposals – from Layfield to Lyons – to devolve more power to local authorities, which have made little headway against the adamantine resistance of central government departments to any loosening of their controls.

The present government has made much of its localist rhetoric, but one only has to look at Michael Gove’s Department for Education to see how little appetite there is to devolve power to local councils.

The Localism Bill itself – stuffed with more than 100 new centralising powers for the secretary of state, and riddled with inconsistencies between its competing ambitions – is a classic illustration of the difficulty in achieving real devolution. Faced with this challenge, the City Finance Commission makes a series of recommendations, none of which should prove impossibly difficult for the Government to adopt and which, cumulatively, would make a quantum leap in the devolutionary direction.

The first is to build on the Total Place initiative to establish ‘area growth budgets’, pooling resources currently fragmented between a variety of different bodies and delivery agents, to achieve a more efficient and seamless series of programmes supporting growth.

Second, recognising the importance of demonstrating the benefits from devolution, the commission proposes pilots in selected areas where local authorities would enjoy additional freedoms while, at the same time, developing new partnership models of governance with business involvement in the growth agenda. Currently, local authorities derive no direct economic benefit from growth.

So, the commission recommends changes to the business rates regime which will allow authorities to capture some of the increase in rateable value which they are able to generate, while at the same time, keeping in place a framework for supporting other authorities which could not survive on a self-sufficient basis.

The aim would be to give greater incentives to cities such as Manchester, Birmingham and London to expand their tax base in the national interest, while not sacrificing areas facing structural decline.

The commission gives strong support for the extension of tax increment financing (TIF) to local authorities. Fifth, the commission proposes consideration of new governance structures which promote closer and more effective working between central government, local authorities and business, building on the experience of existing models such as business improvement districts (BIDs) which have helped support local investment in enhancing commercial districts.

As one of the commissioners responsible for the report, I am inevitably biased, but the case for change is overwhelmingly strong and the commission’s report sets out a persuasive routemap for reform.

Let’s hope the Government, which responded with warm words at the report’s launch, acts on its recommendations.

Nick Raynsford MP is former local government minister